Skip to main content

tv   Squawk Box  CNBC  December 12, 2018 6:00am-9:00am EST

6:00 am
♪ live from new york where business never sleeps, this is "squawk box." good morning welcome to "squawk box" on cnbc. we're live from the nasdaq market site in times square. i'm becky quick along with joe kernen and andrew ross sorkin. let's look at the u.s. equity futures. the markets are indicated up by 230 points for the dow up by 25 points for the s&p 500. up by 84 points for the nasdaq what you see right now may change drastically through the course of the day. yesterday we saw big swings, a move of over 500 points through the course of the session. at the high of the day the dow was up 368 points, and down by over 200 points. a lot of volatility continuing through the markets. look at what happened overnight in asia. it looks like the nikkei closed in the green
6:01 am
up by 2% the nikkei now sitting at 21,602 hang seng was up sharply, a gain of 1.6%. the shanghai composite was up by a third of a percentage point. in europe today, where we're continuing to hear what's happening with the talks with theresa may and this vote of no-confidence she'll be facing later today, stocks are up across the board there the ftse up by 1%. stocks in germany up by 1% the cac is the out-performer let's look at what's happening with treasury yields in the united states. looks like today the ten-year is sitting at 2.892%, still below 3%, even below 2.9 in global news, huawei's cfo has been release the from a canadian jail on bail. she face a lengthy legal battle now over extradition to the united states where she will face charges of violating
6:02 am
sanctions with iran. she has to wear a 24-hour ankle bracelet she is due back in court on february 6th a canadian diplomat was taken into custody in china. he was working on a research report on north korea when he was detained we will get an update on this situation later this morning we should mention that president trump at one point talked about the prospect of using this as a chip in the trade war. we talked about whether this was political or something else going on i don't know -- it may not have started out politically, but it could end that way >> it's not clear. >> continuing to use it as a chip or -- >> yeah. that's the question. >> or right from the beginning that was assumed >> i don't know that he knew
6:03 am
about it before. >> the iran stuff, other countries have confirmed it's egregious what's going on with iran not even the 5g, stopping my pacemaker. >> trump made a comment about what he thought was good for national security, he said i would intervene in this situation. >> i think maybe we already intervene. continuing to be part of the trade negotiations, maybe it started, maybe it didn't maybe it continues, maybe it's new. either way it's part of the football now the political football >> let's get down to eamon javers to ask him what he reads on all of these things >> good morning. let me bring you that comment from the president that you were talking about. here's what president said in an interview late yesterday with reuters about the huawei cfo, meng wanzhou
6:04 am
he said if i think it's good for the country, if i think it's good for what will certainly be the largest trade deal ever made, which is a very important thing, what's good for national security, i would certainly intervene if i thought it was necessary. so the president there suggesting that he might intervene and somehow soften the legal picture for meng wanzhou around this extradition request by the united states you know, under article 2 of the constitution, the president is the top law enforcement official in the united states presumably he could do that if he felt it was in the national security interests of the united states to trade meng wanzhou for some other concessions in this larger trade war interestingly robert lighthizer and other american officials earlier in the week had suggested that the huawei case was a legal matter, an entirely separate thing from the trade negotiations now the president explicitly linking the two.
6:05 am
you have to imagine the chinese side will see that as root poan poker chip on the bargaining table. the question is whether there will be support inside the department of justice for the president doing that presumably the folks tloeover te would salute and follow orders but we'll see if there are angry leaks or anything like that. it could be a toughy thing for the president to do, but it appears he has the legal authority to do it politically it could be something that helps him get to a deal in the trade war, but march 1 is rapidly approaching >> this is going to be a game of up and down, back and for it doesn't seem like there will be any clarity to this. >> no. in the reuters interview the president talked about he expects the chinese are starting
6:06 am
to buy enormous amounts of soybeans again, cranking up that process which has been so harsh on soybean farmers interestingly, i can tell you that there are people inside the white house who don't believe buying soybeans and spending money in the united states, buying u.s. products generally is enough. they believe, some of them, that what is at stake here is the chinese government stealing america's technological future by forced technology transfers and espionage to the highest order. that's the problem they want to solve. some of them don't see the chinese putting a few more bucks into soybeans as a solution here it may not be that the chinese have as many political chips to offer as they think they do, at least when it comes to some of the people on the president's team the question is who is he listening to >> the question is what does the
6:07 am
president himself think. >> right the president has never outlined here's the deal i would take from the chinese he never said specifically what he would agree to. that's probably good negotiating. you don't want to lay out your cars cards on the table until you get down on it, but we don't have a view of how this will end. >> thank you very much >> let's talk about the broader markets, joining us is susan schmit and greg hahn i want to start with greg. we've been underweight going into this whole market what does that mean? when did you get underweight are you talking about equities you do stuff with fixed income as well. >> we have been underweight the equity base. >> since when? >> three years >> three years >> yeah. our view has always been -- >> you missed a lot. >> we did.
6:08 am
>> okay. >> we're value investors, so we're looking at relative value in the market. >> it must be better now >> we're kids in a candy store >> so value is better? >> there's more volatility, so where there's volatility there's mo more -- >> i love that expression. kids in a candy store. >> yeah. >> you talk about a turn in the credit cycle, which is scary you think it's manageable. you think they can orchestrate this where there's not a bad outcome? >> the interesting thing is it depends on how high the fed pushes the interest rates. we're starting to see bankruptcies there's a bankruptcy index that's been increasing the last two quarters
6:09 am
we see relief in the ten-year treasury that might have improvements in the credit cycle >> i deon't like reading about peak things, peak earnings, peak economy. when it hits a peak, is it a plateau or is there another side >> it doesn't have to be the peak but that's what people are nervous about. >> so that's the concern >> they keep looking over their shoulder, is this the end? have things peaked out i don't think that's the case. i think there's a lot of opportunity in the equities market, but it's a tougher environment than before. >> are you a kid in a candy store, too >> i may be a kid in a candy store but i'm selective in what i like >> they're all empty calories, really >> at the moment they all feel like empty calories because they go up and down >> you mean the market itself feels like a sugar high. >> yes there's been these days where
6:10 am
you think it tastes so sugary, then you realize empty calories by the end of the day. >> if you were the market and you said, you know what? this time i will really keep throwing investors one way or the other with head fakes s it not selective? >> head fake, pick and roll. >> big moves 800 up 800 down i think our ratings are -- >> helps better than watching paint dry >> i don't know. >> any way, energy, energy and what else do you like? energy and real estate real estate seems like that would be vulnerable. >> the real estate peace of it, what we're seeing now is the question of in the fixed income space where are we seeing potential opportunities. the two opportunities is in real estate and in energy with credit spreads widening
6:11 am
out, there's opportunity out there. our belief is that we'll see supply decline going into the end of the year. it won't pick up until the end of january so we expect spread volatility to decline. >> susan, do you have specific themes >> we are bottoms up specific investors. i think this is a time where differences matter you will see a correlation between names lower. so before we had this market come up, everybody enjoyed lower interest rates, a low cost base. i don't think that continues in 2019 i think there are well-run companies that can make a difference while their cost to debt is rising, their input costs may be rising, they'll control it i think things start to spread out again. you see some companies that are more efficiently run -- >> what are some of the more well-run companies >> there's been a huge change. you look at the consumer sector.
6:12 am
that's fun because people can relate to it the way the consumer dynamic is changing, it's different than where it is. we talk about the decline in bricks and mortar, online presence the companies that are dedicating resources to capture the consumer and how that consumer spend has changed that provides opportunity >> that's an expensive proposition. if i'm a traditional retailer and i'm trying to make myself much more omni channel and online retailer, it's not cheap. even the companies doing that and doing it well, like a target, are getting punished because investors don't want to see the margins. >> i think investors are also worried about the consumer spend. there's a lot of emotion in the market you can see with this crazy pricing things are moving. >> which means what? what is a company well run that you think they're getting this right? >> when you look at our -- clearly the ones that shifted to online presence.
6:13 am
the ones already leading on the internet, those are the ones where we go forward a year from now and they do a better job the guys late to the game are still suffering. >> you like target or -- >> any of the big retailers. i think the way consumers have changed, i like target nordstroms, we said we stopped shopping at the bricks and mortar, but there's a place for bricks and mortar. nordstroms has a better system we look back at everybody pun h punished by amazon, and amazon's system long-term with win out. long-term winners is your timeframe. you have to look to the longer term everybody will have a tough quarter now and everybody will see that consumer spending pattern change and i think that feeds into this market nervousness. >> greg, do you get the feeling, as far as the fed goes, that either -- i don't know who
6:14 am
massaged the fed, trump made a lot of comments, jim cramer made a lot of comments. the market itself has spoken about its own feeling about rate increases. did we go from four or five now down to two in the cards they listened, vent thehaven't y >> yes when the fed say they're data dependent they really are. we think december is in the bag, they'll raise in december. there's one more one more in 2019 >> early, mid? >> early and we think by the second quarter you'll hear a dialogue coming out of the fed -- >> they'll be cutting? >> they'll be pausing. the word will be pause >> the word will be pause. >> yeah. >> wouldn't that be bad if by the second quarter they would be cutting snchbl ing cutting? >> why
6:15 am
>> because the transportation index is down 60% and we're in recession. >> the opposite is what is happening now. >> it's tough to be the fed. it is. >> i think if the fed had their way, they would be looking at a real rate of 2% over the fed funds rate they would be pushing this to 4% if they could get 3% out of this, they would be happy. >> i'm back to thinking totally differently about it if innation is oming, that's one thing. if we were in secular disinflation, where it's going to -- if we could see we're a long way -- because of innovation or aging. if we knew that was coming, there would be no reason to get back to neutral. >> the interesting thing is given -- economics aside, given what's going on in the geopolitical world, the chaos in germany, france, united kingdom,
6:16 am
that a tightening policy given everything that's going on globally in developed countries is a challenge >> right look at germany, we're tightening they're trying to get to 1%. thank you. susan, bottoms up. i love that. we need aviva, we have no idea it's not lift all ships. we need money managers >> i think it's a stock picker's market >> plays right into your hand, doesn't it have you ever not said that? >> i have. i have gone out and told clients i can keep up, but that's it i'm here to protect when things go bad now it's a stock picker's market some companies will do this well some companies will benefit from easy terms and they'll blow up
6:17 am
>> she seems sincere >> let's get over to london now. british prime minister theresa may facing a no-confidence vote this afternoon wilfred frost joins us with more >> yes uk prime minister theresa may will face a vote of no-confidence from her own mps as leader of the conservative party and therefore as prime minister, too. >> sir graham brady confirmed that he has received 48 letters from conservative mps, so there now will be a vote of confidence in my leadership of the conservative party i will contest that vote with everything i've got. >> that vote will take place at 1:00 p.m. eastern time it was triggered because 48 of her conservative mps called for it she will need to win 158 votes or 50% in order to stay on as
6:18 am
prime minister if she does, her power will increase a little because she can't face another vote of no confidence for another 12 months let's look at sterling over the last two days. it is lower compared to 16 hours ago when rumer rumors of this vf no-confidence picked up but it's higher today why? because she has received votes of public confidence from a wide range of mps including senior cabinet ministers like jeremy hunt or michael gove who was a leaver it has taken quite a long time to get to 48, to reach 158 will be quite difficult almost all mps are annoyed she denied them a chance to vote on
6:19 am
the plan late tonight we will know if she's still prime minister or whether the uk needs to pick a new prime minister >> wilf, just walk us through. do a little handicapping for us. i know you're not in the handicapping business. do the math so we understand how this could play out. what do you see happening? i think we just lost our connection to wilf in london >> our own no-confidence vote. we will work on that >> i was going to ask him if this was a situation he was anticipating things are moving so quickly there. when he was thinking about this trip a week ago, did he anticipate getting to this point so quickly we'll get some of his thoughts on this process later. when we come back, energy stocks down nearly 20% from the may high, dipping into the bear market territory yesterday we'll talk about the headwinds for the energy sector next. as we head to break, a look
6:20 am
at the premarket winners and losers in the dow. exxonmobil is leading the way, up by about 2% this isn't just any moving day.
6:21 am
6:22 am
this is moving day with the best in-home wifi experience and millions of wifi hotspots to help you stay connected. and this is moving day with reliable service appointments in a two-hour window so you're up and running in no time. show me decorating shows. this is staying connected with xfinity to make moving... simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows.
6:23 am
click, call or visit a store today. welcome back crude volatility continues the price of oil down 28% just since the start of october energy stocks are flirting with bear market territory. joining us now for more is matt smith, director of commodity research at clipper data matt, there's so many things we've been trying to figure out with this. is this a supply situation or a demand situation is it signaling bigger, badder things on the economic outlook yesterday what we heard from api is that there was a huge draw down in inventories, maybe 10 million barrels, maybe that eases concerns on demand wh what do you think? >> we have the eia report, we
6:24 am
tend to think we'll see another draw you tend to see this in december where gulf coast refineries try to draw down inventory so they don't have to pay tax on them. that's one consideration but also strong refinery runs, that's using up crude. strong exports out of the u.s., over 2 million barrels per day out of the gulf coast. combination of those different factors has caused this draw we'll likely see more coming through. it's a seasonable thing. not much to read into it >> what do you think the real story is is this a supply picture or a demand picture >> more of a supply picture than a demand side of things. we're in a similar situation to late 2016, where saudi arabia had their pedal to the metal pushing out production and exports ahead of a production cut. we have an overhang that we have to work through as we go into
6:25 am
the next production cut in 2019. >> so they're producing as much as they can so they can say we'll have a production cut? >> yes they're over about 11 million barrels per day in terms of production they said they'll drop to 10.2 that's taking them back to where they were in the summer. they did increase because there was a supposed supply gap when it comes to iran the key thing here is we have got into this oversupply situatio situation. >> energy stocks have come down significantly as well as oil prices come down exxonmobil is leading the dow today. what's your longer-term take about where prices are headed? >> sure. from a speculative point of view, there's no one really to close out those long positions anymore. because everyone has already gotten out of it the same time as well as the
6:26 am
producers, they don't want to sell and hedge production at this level when just two months ago they could have hedged it next year at 74. now we're down at 54 we're forming a bit of a base here around this $50 mark. the downside risk comes from the demand side of things with the concern relating to broader economic headwinds >> do you dig in to know which energy companies did a good job of hedging when we were $20 higher than now? >> not a lot have done that at all. even some of those more conservative ones such as pioneer resources have not put on as much hedging as you would have expected or as we've seen in the past. that's another thing going into next year in terms of their budgeting. they are going to be under more pressure because they didn't get in at a much higher price. >> how much faith do you put in cooperation between opec members and then the russians as well?
6:27 am
>> it's similar to what we saw last time around in that saudi will lead the charge they get russia on board as well they'll go the large amount of the heavy lifting. so as long as those guys do those cuts, that will help us get that higher price coming through. it doesn't matter what those o producers do >> you think the saudis will stick on this? >>y yes, because they want that higher price come through. that is one of the driving factors. >> we won't see $88, though. where do you think prices will top out? >> as this production cut takes hold, we should see gradual support coming through as long as we don't have a recession, then we should see wti prices moving higher u.s. production is not going to be as strong in terms of growth as it was this year.
6:28 am
this year it went from 10 million barrels a day to 1 11.5 million barrels a day. next year there's not as big of an increase from the u.s., opec and non-opec are cutting back, so that should help balance the market >> matt, thank you for joining us >> thank you. when we return, grading the performance of the google ceo in front of congress. >> i lead this company without political bias and work to make sure we continue to operate that way. to do otherwise would be against our core principles and business interests. ed lee will join us to talk about that and as we head to break, a look at yesterday's s&p 500 winners and losers who says our bank isn't tech enough?
6:29 am
6:30 am
6:31 am
everyone, look at your phones. the design thinking, the digital engineering, security, blockchain, and we will be first to market! yes. when we do we launch? unfortunately, in 2 or 3,
6:32 am
hours. why the delay? cognizant is helping banks use digital technologies at scale to advance speed to market. ♪ welcome back, you're watching "squawk box" live from the nasdaq market site in times square >> good morning. among the stories front an center, the recent cyberattack on marriott that exposed the data of 500 million guests has been traced to a group of
6:33 am
chinese hackers. the hack was discovered in september and revealed last month. the "new york times" reports the breach was part of a chinese intelligence gathering effort that hacked health insurers and security clearance files of millions of americans. a building on facebook's campus in california was evacuated yesterday after a bomb threat that threat came into the new york police department's crime stoppers department. police evacuated a three-story building on facebook's campus. police said everyone was safe and there was no word of anything suspicious found in the building cbs news reached a legal settlement with three women who accused the network of not doing enough to stop charlie rose from sexually harassing them. the women allege that rose treated them inappropriately and they sued cbs arguing that the network ignored complaints from cbs employees who worked with
6:34 am
rose the women plan to continue their suit against rose. let's look at u.s. equity futures. you can see dow futures indicated up by 215 points s&p futures up by 24 nasdaq up by 77. let's talk about the big grilling that lawmakers had in store for google's ceo, sundar pichai yesterday on capitol hill he did face some tough questions specifically on political bias and user privacy >> does google through this phone know i have moved here and moved over to the left it's either yes or no. >> not by default. there may be a google service you opted in to use. >> so going the knows i'm moving over there it's not a trick question. you make 1$100 million a year, you ought to answer that question >> a little bit of theater taking place there want to welcome in our own ed lee. thank you for joining us
6:35 am
you watched all of this. you took notes, i know >> yeah. feveri feverishly >> it did seem -- the privacy issue was one issue. that was actually unfair to sundar, because it's not a yes or no question >> it's complicated. there's a bunch of apps that google makes that have different levels of default. he kept answering it's up to the user, it's up to settings. a lot of these settings on these apps come defaulted to track you. >> a lot of us don't know how to track down ands that those things that was the point the point was a fair one, not do you know, sundar but do i know >> and do i have control and how easy is it for me to -- >> right how do i shut it down if i don't want it.
6:36 am
>> your takeaway -- what is your takeaway of their takeaway that's what this is about. what the washington takeaway is. >> for the year, we have seen congress grill tech executives, most recently sundar but mark zuckerberg notably and jack dorsey showed up a couple of times. we call it political theater, but what does it try to accomplish for these guys it plays to their base it helps create campaign video in the long run. which will probably show up on youtube. more importantly it -- >> owned by google >> owned by google and it plays to their donors >> i have a two-prong question, sorkin when you finish -- >> i want to understand, so we talked about the theater element. is there a reality element that will impact the google business, the twitter business, the facebook business as a function of all of this >> not next year not any time soon. the reality of the impact will
6:37 am
be these guys will raise more money and help theirk coffers. there's one hint, section 230 of the communications decency act, it gives them broad protections. it gives facebook and twitter, google broad protections for whatever shows up on their service. if crazy stuff shows up, you don't hold these guys liable as long as they try to do something about that >> watching nadler, his contention was that everybody has a point of view. he pointed out, you have sean hannity, you have don lemon. so this happens all the time in media organizations. they decide which side to take you can't expect them not to is search the same as a media entity if you stack your search results with an algorithm that favors one side or the other -- is that
6:38 am
the same -- they're saying "washington post," "wall street journal," op-ed pages are saying this is the world we live in there's two sides. they're entitled to do that but with search are they my second question is we had democrats say i search myself. the first ten searches were daily caller, drudge report, breitbart. he says i search myself and all that came up is i'm getting slammed. >> all those sites you mentioned are much better at search. >> so then google will put breitbart at the top >> right the emerge jens of the cnce of happened because of the facebook and other -- >> so we don't have to worry about search >> if we take sundar at his word, the algorithm --
6:39 am
>> why do you say if >> you know why i say if we don't know what's in the algorithm. that's part of the liability with google and facebook as well, a lot of their systems are a black box. they can claim this is proprietary, this is what we do. this is the value of our company. >> even on facebook you, you go and look at the top ten searches on any given day, they are populated 8 out of 10 by sites that might be described as conservative sites so the idea that it's stifling political speech -- >> within facebook and what shows up through google search as well in terms of if you're searching for news regularly, fox news pops up they're better at it and a lot of people are searching these things out and clicking on them. that's another signal that google reads to say that's popular. let's bring that up. >> it became the debate yesterday -- >> the right wing, left wing -- >> the trump picture
6:40 am
did you see this >> i wasn't watching if you put in the word idiot into google, one of the pictures -- >> do you remember rick santorum >> they asked why that was, and they said for better or worse there were so many clicks on one site -- >> they had that tool monitoring the mob mentality. >> how many times have you p clicked -- >> never >> thousands >> never >> he votes. >> different picture >> if you hold it down, does it keep clicking? >> before you go, another question for you digital media, specifically the writedown on the verizon oath -- >> aol is not worth as much. >> stop the presses. >> stop the presses. >> oath is no longer worth what they thought it was. so the bigger question is what does this say about digital
6:41 am
media at large i'm thinking of vice, vox, buzzfeed, all of the news and digital -- >> the future of publishing -- >> was supposed to be these sites. >> and it might be in some form. i think what it tells us is that a digital media company based on advertising are effectively losing to google and facebook. it's an unfair fight google and facebook are not purveyors of content as much as they are channels. they're distribution it's like cable versus the network. >> and verizon basically wrote that investment down to basically zero >> does it confirm that tim armstrong is an absolute genius? he should be all of our idols if we can time our own buys and sells like that. >> when verizon was talking to tim armstrong, they wanted to talk to himibility ad tech that
6:42 am
a they had he said, no, no, you want to buy us and when he got there, he said we medneed yahoo! as well. >> when he got in, i thought what then he did it you're here, then it's done. >> to be said, oath, yahoo! aol enterprise has tons of users attached to t but it's ed ted ta declining user base. what do you think happens to those assets. >> buzzfeed, vice, they have to find a way to consolidate. it's a way to tie themselves up to seek better terms >> you have to be big. >> you don't think that's taking two failing giants -- >> it's a bit like that. if you combine a bunch of losing businesses together, it doesn't
6:43 am
mean -- >> yes ed lee, helping us this morning. thank you. coming up, showdown in the uk theresa may facing a no-confidence vote in parliament it really is a tough thing we have to read these things in advance, sorkin, when theresa may is involved. theresa may may -- i don't know. after the embarrassing withdrawal of her own brexit divorce deal a live report from london coming up at the top of the hour this is squk sqis "squawk box" .
6:44 am
6:45 am
6:46 am
time for the executive edge. a new study founds college badle markets. the study founds endowments would be better off if they bought treasuries. there were median returns of 5.5% below the classic mix of 60/40 mix of stocks and bond indeexi
6:47 am
index indexes. coming up, dominic chu may tell us why the next hero stocks may be the same as the last ones before we go, a check of european markets right now at&t provides edge-to-edge intelligence, covering virtually every part of your finance business. and so if someone tries to breach your firewall in london & you start to panic... don't. because your cto says we've got allies on the outside... ...& security algorithms on the inside... ...& that way you can focus on expanding into eastern europe... ...& that makes the branch managers happy & yes, that's the branch managers happy. at&t provides edge-to-edge intelligence. it can do so much for your business, the list goes on and on. that's the power of &. & when this happens you'll know how to quickly react...
6:48 am
6:49 am
our new, hot, fresh breakfast will get you the readiest. holiday inn express. book now for at least 20% off during our annual sale.
6:50 am
♪ if you are searching for the market hero stocks that could lead to the next wall street rally, guess what. they may be the same as the last round of market heroes dom chu has that story. >> those heroes are going to be the ones that took us to the record highs of arguably the past four to five years. they're going to be the ones that could power the next leg of the rally. we need these stocks with the s&p 500 on a year-to-date basis, relatively
6:51 am
flat after a huge run last year. as you take a look at the stocks that are perhaps the most important, they are the largest cap companies out there, the ones that have posted some of the strongest gains. these are the stocks to watch. among them, microsoft. no surprise here one of the biggest companies out there. 35% gains year to date through the october 3rd highs. apple, 37% gains nvidia it's not as big as those guys out there, but the chip sector has been a hot part of the market 48% gains through the october 3rd mark amazon, 67% gains. and netflix, nearly a double at that point just on a year to date basis many of these stocks have repeated in the past years in the move higher in the overall markets. i will point this out as well. if you look at microsoft, apple, and amazon, those three stocks year to date through the end of november have accounted for
6:52 am
40%-plus of the s&p 500's gains albeit modest. those are the stocks to watch. they could be the next market heroes back over to you >> hey, dom. i'm trying to figure out how to think about all of this. i guess part of it is maybe these stocks returned from the battering that they're getting maybe part of the story is also we can't find anybody else every time you looked at the financials for that, they fall apart. >> and the financials have been one of those sectors when i first got into the business, it was always the conventional wisdom that they had to lead the leg higher because they were the biggest weighted sectors out there with some of the changes between communications and technology, maybe they are those two sectors are the most important ones out there. but financials have been a value story for such a long time post-financial crisis. and there just doesn't seem to be a catalyst to get them out of their function they've been range bound for some time. of course they've been really weak over the course of the past month or two
6:53 am
yes, financials are probably important to this overall scheme, but the largest companies out there are the ones that the market cap weighted indices. and those are the stocks you really want to watch because they have the most impact. and fortunately for some of the bulls out there, they've been some of the best performing stocks at those levels and they're the one this heroes are going to look to for that market leadership higher. >> all right, dom. thank you. some stocks to watch on your radar today. american eagle outfitters under pressure this morning. retailer's latest quarterly revenue and same store sales missed forecasts slightly. but earnings were in line. american eagle also projecting current quarter earnings that are below expectations that's not a pretty -- we keep talking about peak things. there's a peak right there pivotal software is up this morning. the earnings and revenue beat forecasts. and pivotal's guidance is roughly in line with estimates
6:54 am
coming up, british prime minister theresa may facing a vote of no confidence. >> theresa may may. >> yeah. from members of her own party. we'll get a live report. plus we'll dig into the trade headlines and government talk of a shutdown in d.c. "squawk box" will be right back. the future of technology investing
6:55 am
lies beyond the tech sector. it's about technology transforming every sector. ♪ at pgim, our bottom-up approach uses a technology lens to identify long-term winners. from energy... to real estate... to retail. finding such opportunities for alpha is the true value of active investing. and around the world, you have a partner in that pursuit. pgim: the global investment management businesses of prudential.
6:56 am
6:57 am
bracing for another wild ride what you need to know before the opening bell on wall street. tencent trades today the largest ipo in year pricing on the low end of the range. is it a sign of what's to come in 2019? plus trumponomics in focus
6:58 am
gregory mancue joins us as the second hour of "squawk box" begins right now live from the beating heart of business, new york, this is "squawk box. good morning, everybody. welcome to "squawk box" here on cnbc we are live from the nasdaq market site in times square. i'm becky quick along with andrew ross sorkin and joe kernen you are looking at the dow futures right now up by about 200 points s&p futures up by 22 then you have the nasdaq up by 71 but of course yesterday at this time, we were looking at big advances that ebbed and flow ed through the course of the day. but we'll continue to see what happens as we get closer to the opening bell here is what we are watching this morning let's go through the list here
6:59 am
brexit hanging in the balance. we are hours away from the outcome of a vote of no confidence from theresa may's party. a live update is straight ahead. president now saying he's ready to step in on the huawei case if it will help get a trade deal done we have details on that straight ahead. and we will talk about the latest trade, china, the economy. the markets moving in positive territory after the president confirmed talks with china are ongoing and he would not raise tariffs until he was sure of a comprehensive trade agreement. so a lot on tap here in the next hour or two. saw this last night. couldn't figure it out few stocks on the move dave & busters >> the sorkin family, i think the quick family could tell you about it >> video games and stuff >> and you win prizes. they serve beer too.
7:00 am
>> it beat estimates by 6 cents but also see revenue beat. but the shares got whacked last night. weaker than expected comp store sales. >> you know where you can buy duff beer? >> where >> orlando studios they have an entire area which is, like, simpsons world and you can buy duff beer. >> did you go on the simpsons ride >> yeah. >> it's cool how you can lose your stomach and you don't even move >> i had to close my eyes. i got a little sick. >> you've thrown up on everyone's helicopter, right >> not everyone's. >> more than one famous people. >> just ross perot jr.'s >> is that the only one? >> i've thrown up in a lot of planes i did throw up in somebody else's plane happy morning. good breakfast >> we can talk about lettuce if you want >> no. >> let's not >> we're never eating lettuce again in my house.
7:01 am
you read the problem. >> see now you're coming over to me can kale, right? kale's looking good. >> once again, you had the early call on the ale. are you sure they have porta potties where they get the kale? that's the issue, supposedly an valuation call on verizon. being downgraded after hitting the price target of $58. the analysts are expecting them to be in 2019. let's get you caught up on the markets at this hour joining us is chief global strategist at deutsche bank and also a trading specialist at mkm partners and managing director guys, let's talk about what we've been focusing on your two biggest concerns right now are what's happening with trade talks with china but also concerned about late cycle when it comes to the economy. are you relieved of any of those concerns when you hear what the president said yesterday that
7:02 am
he's willing to negotiate with huawei >> the way i would put it is those are the two main concerns of the market. as far as trade policy is concerned, i would argue that's a genuine risk i would argue as far as the lateness of the cycle is concerned, the market's concerns are probably way, way overdone and we can talk about that on the trade policy front, i would argue, you know, it's been an issue for the market much further back than sort of, you know, seems to be the case i would argue if you go back to the third week of may, what you saw within equities is, you know, a very, very defensive rotation across the sector so while the market continues to go up from april to september, this big pullback feels very bad. if you looked one level below the surface may to september, you would see utility staples, you know, health care leading and all of the cyclical sectors, you know, underperforming or actually, you know, even
7:03 am
falling. and those disconnects are very large. i would argue the main concern in the market is really all about trade policy it is, of course, having, you know, negative impacts also on the concerns about the lateness of the cycle because tariffs, of course, don't help costs they don't help global growth. and so it's exactly the wrong thing at the wrong time. am i relieved by the latest announcement no because i think we've had a lot of announcements and the situations just, you know, just very unclear right now. i think there's an issue here between, you know, the tariffs, for example. i mean, is this a negotiating ploy or is this an objective by itself it's unclear >> what's at the top of your list of worries? >> the trade situation is one of them that's changed in the last month. six months ago when the president would say we're making good moves on trade, futures would move up. he did that on thursday evening.
7:04 am
no change in the futures he did it friday no change. >> so it's becoming more of a show me market >> it's a show me market it's like a company that guides higher and then misses expectations the market increasingly takes a skeptical view because we've had a number of false starts we'll see if the advance this morning is sustained if you get the reduction in auto tariffs on u.s. companies from 40% to 15%, when you think of all the trade issues out there from intellectual property to other issues to the trade deficit, the auto situation as one subset is a fairly straightforward problem. the other issues are much more complicated. >> so what are you suggesting? that we'll take a deal that is manageable and workable and avoid the bigger problems? >> it's going to take some time to get the full trade picture done and will the markets extrapolate that this is of a much larger trade. or is this a start of trade with
7:05 am
volatility 50 point swings in the s&p on a daily basis. >> what the president's doing may be highlighting just a reality of our relationship with china regardless of what was happening with trade when they came out with their 2025 and 2030 plans. that basically looked to take over leadership from us on a lot of places. it inevitably put us on a path moving forward what would you think >> go ahead. >> it's not -- i mean, his goals aren't necessarily controversial. it's the tactics that come into question you know, when he comes out of an underwhelming g20 in buenos aires and says we're going to get this -- we're going to go to zero on auto tariffs and the chinese are like, i'm not sure we said that and then there are other comments he makes and there's no follow through are we starting the 90-day period november 30th or january 1? >> i think it's clear it was december 1st, right? >> it seems like it's already begun. >> right >> so the lack of clarity, the
7:06 am
lack of a singular statement communique from the two countries following that, it's unsettling the markets they want clarification. they want verification now because it is a show me mentality. >> i would also argue it is completely unclear at least to me what the u.s. administration is looking for from the chinese again, you could argue this is a negotiating tactic but it's really not clear that even if we do get offers from the chinese that we're going to mover the goal posts setting out a amount of achievements we want to get is left unclear 37. >> it's much more than iphones and intellectual property. it's really curtailing the rise of the second largest economy to challenge us for supremacy financially, economically, militarily >> so you think this is much more than what's going to happen
7:07 am
in the next year >> oh, yeah. >> okay. which then explains very much so why you haven't heard exactly what the goal post is. in part because if the goal post is what you're talking about, that leads to a whole different conversation >> that's right. and that's consistent with how he has mapped out a wide range of issues that have to be addressed. >> to me the question is he looking at the 2025 or 2030 vision of xi -- curtailing that. or is he not really telling everybody exactly what he wants because it makes it easier ultimately if, in fact, he doesn't get what he wants to say okay i got what i want >> it's both he doesn't show his hands because he's a negotiator. >> what do you do at this point? if you're an investor and you watch we're down 10% for the year at this point, do you buy
7:08 am
into this. or do you think there's too much uncertainty in the future? >> i would say two things. number one, that you want to sort of remain neutral in the market here. of course that depends on sort of your three-month view we are pretty constructive because i would say the big issue for the markets since earlier this year is how late we are in the cycle i would argue those concerns are way overdone we don't think there's a recession around the corner. but i would argue the second derivative is second in the markets. growth is slowing in terms of earnings we go from 28% last quarter to 20% this quarter probably 5% to 6% in the next quarter. and so, you're not really going to have visibility that earnings growth is stabilizing up until well into the late in the first quarter, maybe in the second quarter. and so i would argue, you know, we will get that stability we will get that visibility. >> why are you neutral on the
7:09 am
markets? neutral but constructive means what >> i wouldn't get out of the market i wouldn't be short the market in the near term you know, depending on your investment horizons, so the longer your horizon, the stronger the case for staying in the market >> but what would entice you to buy? >> a clarity on trade. it's really much about the objectives than about achieving, you know, an agreement with the chinese, i would say the second derivative stabilizing. i would say the market is going to be -- as charles said, seeing is believing the market. >> your a trade index specialist there's been so much more
7:10 am
volatility, that a translation on the trading desk? what's happening they get emotional in their reactions. just like for an individual investor when you decide based on emotion, the result is usually not what you would hope for. so we advise clients to stay rational remember the reasons you either short, get long, close out positions. this fed unlike previous feds are clustered around neutral which is important it's more easy for them to get there more quickly so you would expect them to do that the question is do they continue with the dual taper. and continue with the back end taper or do they cut back on the
7:11 am
reduction. >> we want to thank you both for coming in. >> okay. coming up when we return, brexit hanging in the family this morning. theresa may facing a no confidence vote. we will get an update on what it all means for the uk right after the break. and later, white house's gregory mankiw we're going to talk so much with him. stay tuned you're watching "squawk box" here on cnbc so they say that some day ai will transform the human race. well, today you're a little busy transforming your call center.
7:12 am
dealing with millions of customers a year, like this one. no, i'm pretty sure i didn't order a squirrel playing a guitar. that's why you work with watson. it works with your systems to resolve calls faster and improve customer satisfaction. i detected fraud and helped reassign a new credit card. honey, they're overnighting us a new card. woooo!!! woooo!!! for ai that works with tools you already use, choose watson. hello! the best ai for the job.
7:13 am
7:14 am
in global news that could have a big impact on the trade war between the u.s. and china, huawei's cfo has been released from a canadian jail she faces a battle of extradition to the united states bail for meng wanzhou was set at $7.4 million she will be under surveillance 24 hours a day and must wear an electronic ankle tag separately a former diplomat to china was taken into custody without explanation.
7:15 am
he is with the international crisis group we'll be getting an update on this from beijing later on this morning. coming up when we return, a number of big stories making headlines this morning we want to show you the futures before we head to the break. you're looking at the dow up about 205 points "squawk" returns in just a moment broke my personal record. aflac!? no-good break. gooood break. i'm so sorry we can't make your barbecue. i'm just sick about it. aflac!? different kind of sick. if i can't work after surgery, how am i gonna pay my rent? all these bills? aflac! oh, aflac! and they pay you cash in just one day. see how aflac helps cover everyday expenses
7:16 am
at aflac.com.
7:17 am
7:18 am
uk prime minister theresa may facing a no confidence vote today in the uk. european markets at this hour ahead of that vote, you can see there is green across the board. i don't know who to believe, wilfred, but the latest thing i'm seeing from certain
7:19 am
websites, 153m mps are all sayin they're going to back may. she's going to survive this. you tell us what's happening >> reporter: yeah. the first thing to note, joe, of course, is that this vote of confidence is being triggered by her own mps. but it's business sort of as usual otherwise. she's facing questions as we speak. of course those questions in general posed by the leader of the opposition and what's clear from the last half an hour is there remains a lot of opposition it's testy it's heated. and the exchanges continue as sort of normal but the vote of confidence will take place this evening triggered by her own mps there are 316 of them. 158 therefore needed 50%. in order to oust her if we look at sterling over the last two days, we will see it is lower than where it was 16 hours ago when talk of this vote
7:20 am
picked up. as you said, there has been a lot of support come out for the prime minister this morning. a few things to offset there of course there's not loud support. why would you tweet if you were going to vote against her. so that could be similar numbers, perhaps, building on that front and the other point, of course, these are public statements and therefore the question of whether people could vote differently in a secret ballot but that is the reason as you say we're seeing sterling up today. the sentiment here is she'll probably win her vote of no confidence 2-1, that sort of margin >> why do they do it with secret ballot that seems ridiculous. >> reporter: because this is a secret leadership vote of the party. it's not the general election. and i guess even in a general election, becky, when you or i go to vote, we don't have to tell people how we've done so. >> yeah. but i'm not an elected official.
7:21 am
>> reporter: no, but listen. that's the rules of the conservative party if she wins it, she is then also guaranteed she can't face another vote of confidence from her own mps at least for 12 months it would give her a significant stay of execution at least to stay on and carry out brexit if she loses, then of course all options are open and any one of the 316 conservative mps can throw their hat in the ring to be the next leader they would whittle it down to two candidates and that would go out to the conservative party members to vote between the final two. and the thought there is that those members, those 124,000 members would lean towards a braex it here. the grassroots would prefer it there are big implications for brexit >> when we lost you in the last hour, we were about to talk about sort of the betting on what's going to happen this afternoon.
7:22 am
can you give us an update? >> reporter: well, you mean in terms of whether the vote of confidence will go may's way or not or who could be the next candidate? >> both. between all the different sites, there's all sorts of different odds being put on this >> reporter: yeah. well, in terms of whether or not she's going to be voted out or to get the vote of confidence she needs, as i said and as we saw in the british pound, the odds are favoring she will win again, that comes down to the fact that it's been hard to get the 48 votes needed to trigger this election and this vote of confidence then to reach 158 against a clearly big leap further and as joe mentioned, over 150 mps have talked about their support. so that's why the pound is
7:23 am
rallying the likelihood she'll win. if we're looking at the betting market of who could win if she were to lose, boris johnson is the favorite at 5-1. dominic raab 6-1 of the top five, three are brexiteers two have said they still want to carry out brexit so whoever is next, it suggests brexit would still get carried out. a lot in the air were may to lose this this evening >> some people say there's plenty of rules where a hard brexit would not be -- would the sun come up the next day after a hard brexit? wilf, where are you on that? i worry about you and your -- you know, your state of mind if that were to happen. because we've spoken in the past see? looked like the sun did not come
7:24 am
up the woolsly would open again, right? >> reporter: they would. it'd just be a little bit more expensive. and the bmw to drive me home may be more expensive too. they don't like calling it hard brexit they like calling it wto brexit. you'd fall into wto rules. that doesn't mean zero trade it just means that tariffs could come into play so items get more expensive. now, the flip side argument to that that many remainers would say is yes, you could say that you could say that it would just alter prices, but there are some very intricate supply chains that exist on these routes and altering the factors around it could mean disruption in the short-term as companies and individuals get used to whether it's new prices or new roots of transfer and that could mean whether it's for a day or for a year that
7:25 am
there is major disruption and with it therefore pressure on the economy. but the forecast that some say could lead to 7% lower gdp than otherwise certainly might seem exaggerated to some. but there's a middle ground as well that's what people are trying to work out at the moment >> all right wilf, thank you very much. we will check back in with you in a little bit. when we come back, chinese music streamer tencent music is set to start trading today after a rough public offering process. we'll look at one of the biggest debuts on wall street in recent years and talk ipos for 2019 when we return right now, though, as we head to a break, look at the u.s. equity futures. s&p looks like it would open up by 23 points nastz dak -- nasdaq up by 75 quk x"ilbe right back. inally st, will it feel like the end of a journey? or the beginning of something even better? when you prepare for retirement with pacific life,
7:26 am
you can create a lifelong income... so you have the freedom to keep doing whatever is most meaningful to you. a reliable income that lets you retire, without retiring from life. that's the power of pacific. ask your financial professional about pacific life today. from capital one.nd i switched to the spark cash card i earn unlimited 2% cash back on everything i buy. and last year, i earned $36,000 in cash back. which i used to offer health insurance to my employees. what's in your wallet?
7:27 am
7:28 am
good morning welcome back to "squawk box" here on cnbc we're live at the nasdaq market site in times square
7:29 am
among the stories front and center this hour, we're watching shares of bank of america and morgan stanley they were downgraded at kbw which does not see many positive catalysts for these and other bank stocks going into 2019. we're also going to get another inflation reading in just about an hour economists think the november consumer price index will come in unchanged with the ex food and energy inflation rate up 0.2%. then mortgage applications rose last week according to new figures. purchase applications and refinancing activity were higher during the week. the average 30-year mortgage rate fell 12 basis points during the week to 4.96%. the lowest since september shares of tencent music pricing at the low end of the price range. deirdre bosa has more on that. good morning >> reporter: good morning. $13 a share falls at the bottom end of the perspective range
7:30 am
that is just less than spotify's nearly $23 billion market cap. even though tencent music has more than four times the number of users across its platforms and it's been profitable for years. tencent music has only 23 million subscribers versus spotify's 83 million to tip performers who stream live performances. making is one of the largest traditional ipos by market cap since alibaba and it will present a win fall major labels, universal will ge a chunk because they own part of spotify. the broader tencent is one of china's and the world's big tech companies. gaming and the wechat app is part of the engine
7:31 am
it's been battling others for the chinese digital landscape. music streaming a particularly competitive front with more than a hundred platforms in the country. tencent music starts trading today at the new york stock exchange under ticker tme. >> thank you for that. we want tocontinue that conversation joining us now to discuss the ipo market is brett thomas good morning to you. thanks for being here. >> good morning. thank you for having me. >> we've been having a lot of debate about the future of the ipo market the tencent music issue being just one uber and lyft coming soon. you're an investor i believe in lyft so we should talk about that how do you see this all playing out right now given the volatility in the markets? >> i think it's a really interesting time right now obviously everyone is seeing -- reading the tea leaves and seeing it may be changing here we've had a bull run from march of '09 to, you know, right now and i see a lot of these big
7:32 am
unicorns obviously are -- maybe were going on 2020 to go public for their employees and shareholders i think they're starting to see the economic conditions that are forcing their hand earlier. >> so you think they need to go now? >> if i were a banker, i would be advising all these unicorns if there's a liquidity path in the next year or two, why not file privately have the optionality to come -- >> because you think about what is about to happen >> we've had an amazing market run like we've never seen before right? so i think the valuations of these companies being able to go out on the private markets for years and keep private capital longer is coming to a point where companies have been longer l than usual people are seeing macro conditions you have brexit. you have china trade wars. there's a lot of stuff out there that wasn't in the horizon a year or two ago. >> do you have a take? i assume you're a spotify guy.
7:33 am
>> i am a spotify guy. they got the deal done it was at the lower end of what they wanted to do. i think they were looking for a $25 billion valuation or more. i think when spotify went public they were $30 billion. but they're profitable they got it done on the low end of the range >> as an investor in lyft, do you want lyft to go first? do you want uber to go first what does that say about the valuation issue? and by the way, we talk about them as if they're in the exact same category. they're really not they're almost two different businesses but there seems to be the impression on the market they're the same therefore the kind of multiple that gets assigned to these businesses become important. >> correct listen i think lyft probably missed a little bit of a window to go ahead of uber. listen uber is the monster, right the number one player in the space. but they had a lot of tripups over the last year that were very public. i think lyft kind of missed an opportunity where they played their hand pretty well
7:34 am
i think they should have gone in the last half of this year obviously you're trying to build a business, bigger valuation i think one of the detriments of being the the private market longer is you have these bigger valuations, right? and then you've got to be able to justify that in the public markets. >> is there any chance that lyft probably more so than uber because of the size which is smaller, rather than ends up going public gets taken out? meaning, could you imagine someone taking this off the hands right now because we're going to need one of these types of services long-term? >> you can definitely see the possibility. i think it's the old trick of the head fake. file the s-1 and, you know, scare potentials into thinking we've got an opportunity now to buy this and take it out of the market before it becomes too expensive. >> the other thing i was going to say, interestingly goldman sachs which had been very close to uber all of this time, i
7:35 am
don't know if you remember when they sold that piece of uber early on, they're not leading the ipo. when you pick banks, in fact, morgan stanley is leading the ipo. when you pick the banks, what's usually the ultimate sort of deciding factor? >> i think the ultimate deciding factor is who's got the most experience in the space. for the most part banking is a commoditized business. it's like wealth many gt, right? it's driven by relationships and maybe people who have been helpful to your business since early on so i think that history in building that relationship is a key critical part to it. >> but does it surprise you though given what seems from the outside -- by the way, talk about a catalyst for the morgan stanley stock. i know we just got downgraded, but if you have the uber ipo -- >> nothing surprises me, right it's wall street, right? so anything's possible loyalty is maybe not as long as you'd hope >> can i ask one broader question about liquidity
7:36 am
i mean, a lot of the reasons these unicorns are out there is they didn't have to go public. there was so much extra money sloshing around, so much private funding they could get ahead of time does that dry up if you see the central banks around the globe continue to raise rates? or is that always going to be there? >> it's tough to say i'm a consumer focused investor. and we're kind of lagging a bit in tech where tech has had a monster run. who's to say when it stops but i'm starting to see signs in my core focus that private capital has always been available the last eight, nine years. i think what you're seeing now is i'm seeing things tighten up from other private equity firms, venture capitalists. because things have been so good for so long. there is a reckoning coming where you can't be paying higher multiples in the private equity landscape than what strategics are paying >> maybe that's healthier.
7:37 am
>> it is >> you see kpodty costs. what do you see in the economy impacting your own businesses right now? >> you know, i think transportation costs, freight. ang l i think a lot of our smaller companies are really struggling with shipping costs. shipping costs are, you know, 5%, 10% higher than they used to be and a small company, that could be impactful >> is amazon do you think been a help or hindrance ultimately to the businesses you own >> food and beverage, that was the most transformational i've seen in my lifetime. the reason is it forever changed the landscape of that industry the relationship of a cpg company selling to these retailers, the margins have gotten squeezed. >> consumer packaged goods >> yeah. when amazon and whole foods merger happened, it changed the
7:38 am
outcome now where these companies are getting squeezed the long days of being able to sell to the grocery retailers, the grocery stores now need a healthier margin >> so it just squeezes everything >> yeah. >> all right brett thomas, thank you very much great to see you coming up, former council of economics adviser greg mankiw joins us to talk about trade and a programming note wilbur ross joins the gang on "power lunch" at 1:00. "squawk box" will be right back after a quick break. what do advisors look for in an etf? i tell clients, etfs can follow an index, but which ones target your goals? it's not about quantity. it's about quality. no trendy stuff. i want etfs backed by research. is it built for the long-term? my reputation depends on it. flexshares etfs are designed and managed around investor objectives.
7:39 am
so you can advise with confidence. before investing, consider the fund's investment objectives, risks, charges and expenses. go to flexshares.com for a prospectus containing this information. read it carefully.
7:40 am
it's the first day of school. yeah, he's so nervous. tom is letting him know it will be alright. i know, it's a big day. i'm so proud of him. gotta go. ♪ good luck on your first day. just as we help companies advance in the digital era,
7:41 am
cognizant is helping people do the same, by investing in skills training in communities nationwide. ♪ ♪ all right. welcome back, everybody. time for an update on what's been moving in the premarket dom chu joins us with more of that. >> good morning again, becky it looks like bank stocks will
7:42 am
catch a bit of this relief rally. they've been beaten up so much let's look at two in particular. they are the subject of analyst downgrades bank of america downgraded to market perform same thing with morgan stanley both of those shares up now albeit in a down take for the financials generally speaking. but still up a percent here generally for these two big stocks despite a market perform rating from an outperform to put that in context, all of these big banks have been just real laggards in the overall market move to the downside. you can see here jpmorgan chase, citigro citigroup. jpmorgan the better of the bunch. only down 5% year to date. goldman sachs losing a third of its value. all requewith the exception of jpmorgan, they have a trade
7:43 am
discount just to take a look at the more agate picture in general, three big etfs the spdr s&p bank etf. tracks larger banks. not like the financial does. then the regional bank etfs. you can see here the downside standouts have been these bank stocks over here financial is a key focus given those downgrades we'll see if they can catch a bid in this market rally that is if it holds. back over to you >> okay, dom thanks for that. we're going to move on here. joining us now greg mankiw former chairman of advisers under president george w. bush it's good to see you, greg you're taking on the laffer and steve moore book pretty scathing of a lot of the t tenets of that book. was more of the approach is to a
7:44 am
single issue, the level of taxation when were you with -- 2003 to 2005, is that when you were with bush >> yes, absolutely >> all right did you come in and try to prevent the bush tax cuts from happening? because some of them are 2003, right? >> i'm not opposed to lower taxes. i think there are some good aspects to the tax reform. what i think laffer and moore do is make this seem like a panacea. like it's the solution to all our problems that doesn't mean we can ignore all the other problems like the long-term fiscal imbalance or climate change or other things they think it's going to solve everything >> what do you want to do for climate change you've seen what's going on in paris, right you think a carbon tax is the way to go? i mean, do you think raises prices on -- >> i do. i am part of the group, the
7:45 am
baker shultz group that wants to put on a tax and use the revenue for that to rebate dividends to the public >> not going so well in paris right now, greg. >> well, they weren't going to rebate the revenue they just wanted to raise taxes. but if you raise taxes on carbon and give the money back to people so you're incentivizing cleaner economy but not -- that's a different story than france >> you mean lower co2 emissions? >> exactly lower carbon emissions >> of all the people in that paris deal, you know the one country that has had lower emissions and actually been sort of succeeding in bringing down emissions is not the ones you're talking about. it's the united states, right? but you fault the bush administration -- or the trump administration for not doing more on that >> there's a consensus of economists left, right, and center that are putting a price on carbon is the right way to
7:46 am
go it's not a partisan thing among the experts. it's just this administration doesn't want to believe that there is a problem there and there. all the scientists tell us there is i'm more likely to believe the scientists' brain than the president's gut on this issue. >> and i've heard all those arguments about the consensus and scientists and everything else so in terms of the corporate tax reform, so you think that's okay with entitlements, that's a glaring omission from the laffer and moore book they don't take the administration to task for for ignoring that. isn't that one of the most important things that a conservative like you would mostly think we need to deal with >> absolutely. we need to do something about it now, the laffer/moore view is we're going to generate so much
7:47 am
growth from the tax cuts that all these problems are going to disappear. i don't believe that i don't think most economists believe that so i think we really need to take on this fiscal imbalance and figure out what the difference is for the next generation of workers. >> you talk about not daraes -- addressing the income inequality the biggest criticism is it went to the wealthy >> i think the way to deal with the income inequality thing is not to use the tax system. i think it's to provide more opportunities for people at the bottom of the economic ladder. and that involves on focusing -- >> but when you were there the taxes did exacerbate -- >> one of the things was on education. we needed to focus on the
7:48 am
educational system to provide people the opportunity to climb the economic ladder. not to say you can't make it on your own that means focusing on education. that's another thing this president has not thought about at all >> okay. in terms of china, you say you give the -- that there might be a kernel of truth. here i'm going to read directly. to be fair to trump and the other anti-globalization sell zealots is a kernel of truth that the u.s. produces a lot of intellectual property and that certain countries like china obviously don't really respect that or we fail to enforce the copyrights is that really only a kernel of the problem? it's not a big problem for you >> no, i think it is -- >> how would you address the china issue? >> i think that is the most serious international trade issue that we face
7:49 am
that's very different with what the trump administration is doing which is focusing on the trade deficits, taking our allies, putting tariffs on people in canada, in europe. so i think we need a much more nuanced approach that brings our allies together and focuses on bad acts by china and not putting all our trading partners in the same bucket saying we're going to put tariffs on everything i think that's extremely wrong headed and insufficiently subtle i think we can do better than we're doing now. >> a lot of people want to do that they want to get our allies on board. whenever we hear that, it sounds good it's just -- it just seems like we've had that approach far long time and nothing changed and people that -- i mean, i've talked to people that do business in china. it's mind blowing when they'd go over there what is expected of them thinking of one of the big private companies in this country that does a lot of
7:50 am
business over there. they say they go over -- everything has got to be their way or the highway >> the chinese look at it and think this was the terms of engagement like, this was the deal from the get go you wanted access to the market and here's the price and that was the mistake maybe going to the wto >> i agree with those issues that's no reason to pick a fight with canada and mexico and europe i mean, wto is much better suited for that than the unilateral approach the administration is following. >> greg, what do you think is ultimately going to happen here? >> i don't know. my guess is we'll see something like we saw with nafta they'll have some sort of an agreement which is slight change from the past. this whole nafta revision is not really that radically different from what came before. so my guess is we'll have to see some small agreements. trump will exaggerate how m
7:51 am
magnificent it is. then we'll move on that's my hope the worst case scenario is things fall apart and we go into a global trade war and even trump advisers moore and laffer worry about that in their book >> yeah. they've said that on our program too. but we come back to this point constantly as joe was just talking about. the terms of doing business are pretty steam china has grown into the second largest economy in the world maybe there are chaks that have to happen. waiting for those changes to happen in previous administrations for years and years didn't seem like a lot was happening. maybe it was time to shake things up a little bit would you agree with any of that >> maybe the problem is when you shake things up, you don't know what you're going to get. and if i saw a lot of nuance in this rhetoric, i'd be more comfortable. right now i see a lot of bluster and a lot of wrong headed thinking this focus on the trade deficit
7:52 am
as the metric is something that very few economists thinks makes sense. with the exception of peter navarro, i think you get the entire american economic association thinking the deficit is not as big of a problem as president trump thinks it is >> think of going back to the eight years where we didn't have a single year of 3% growth looks like we may get 3% growth whether it's from deregulation from the trump administration, from the moore and laffer -- they like all that stuff too so we may hit 3% what was -- i would ask you why we weren't able to hit 3% for eight years. but i don't want to have to say that everybody in the obama administration is blaming you and blaming the bush administration for driving the car into the ditch which disallowed them to why give the guys the keys that drove it into the ditch.
7:53 am
was it not obama's fault or was it your fault for putting him in the position of nothing being able to grow it 3% >> i give paul ryan a lot of credit >> the editorial you wrote about moore and laffer is scathing i mean, it's like pulling teeth. >> i think corporate tax reform is going to promote economic growth >> what happened to the eight years -- >> i don't think it's going to put nearly as much as the trump advisers say >> what about the 3% why do we have that now? >> i think we're in a period -- i think we've had a deceleration of growth. that's not just in the united states it's happening throughout the developed world. lower productivity growth. so it's probably not due to any country's settle of economic policies if all these countries are experiencing it at the same time in addition, we're also in a situation now where we're no longer having the demographic
7:54 am
changes. women have already entered the labor force. the baby boom generation are leaving the workforce. so the demographics are pushing into slower growth >> is this the sugar high? >> if you look -- if you look over the next ten years, i'd be very surprised if we hit the average growth rate we've hit in the past 30, 40 years. >> but we might do it for one year >> yeah. all right. >> you've been at harvard. it's seeping in. you were with bush 43 and then i don't know >> i'm still with the bushes i love the bushes. always have. >> i can tell. all right. greg mankiw, thank you thank you for sparring with me i had fun. i love laffer and moore but i love you too thanks coming up when we return, amazon's plans to build a headquarters in long island city causing quite a stir among officials. we'll hear from a new york state senator who's fighting back to
7:55 am
open shop in his district. "squawk" returns with that in a moment place, the xfinity xfi gateway.
7:56 am
7:57 am
and it's strengthened by xfi pods, which plug in to extend the wifi even farther, past anything that stands in its way. ...well almost anything. leave no room behind with xfi pods. simple. easy. awesome. click or visit a retail store today. still to come this morning, bank stocks in focus after a call from kbw on the sector. we'll speak to the analyst who downgraded big names here. check out the futures at this hour. you'll see right now, yeah, we're up by more than 250 points for the dow right now. s&p futures indicated up by about 27 and the sdnaaq up by 83. stick around
7:58 am
"squawk box" will be right back.
7:59 am
8:00 am
market whiplash. another 500 point swing for the dow and it's only wednesday. with the futures pointing to a strong open this morning, we'll dig into what's been driving the markets as we head to the 2018 finish line. theresa may facing a vote of no confidence in parliament over her handling of the uk divorce deal a vote in just a few hours could add another critical twist to
8:01 am
the brexit saga. and if amazon can make it here, it can make it anywhere. is the giant welcome in new york city we'll hear from those on both sides of the city council meeting here in the big apple. the final hour of "squawk box" begins right now ♪ live from the most powerful city in the world, new york, this is "squawk box. >> good morning. welcome back to "squawk box" here on cnbc live from the nasdaq market site in times square, i'm joe kernen along with becky quick, the very punctual andrew ross sorkin and our slacker mike santoli who finally decided to roll out of bed. actually, you were not scheduled here today. >> i was not not invited.
8:02 am
>> right >> you're always welcome out here you are always welcome >> the futures -- >> by the way, he's going to be here through 5:00 p.m. >> got a full day. >> you don't do anything after that >> after 5:00? typically not. once in awhile, yeah >> if there's a lot of volatility, you -- >> the 5:00 show once in awhile. >> on "fast money" too great show great producers, talent, everything else. don't miss it. the futures right now are indicated up triple digits in fact, double triple digits. 253 on the dow 82 on the nasdaq and treasury yields, they inched up a little bit on the 10-year but still below 2.9% 2.895% still inverted still inverted between the 2-year and the 5-year. okay we are watching three big stories this morning theresa may vowing to save her
8:03 am
job as chaos erupts over details of her brexit plan many in parliament are unsatisfied with the deal she struck there's now a vote of no confidence for the prime minister scheduled for 1:00 p.m. eastern time a change in leadership could jeopardize the exit from the eu. two, president trump says he'd get involved in the u.s. case against a chinese tech executive if it was worth it for the u.s going to get a live report for the latest in the case with huawei in a few minutes. this becoming a bit of a chess piece in the larger trade battle and three, fresh inflation numbers due out at the bottom of the hour the data expected to come in unchanged for last month with the ex-food and energy rate up as we mentioned, president trump weighing in on the detention of huawei's cfo in
8:04 am
canada eamon javers joins us right now with what's been going on politically with this. >> the president gave an interview yesterday with reuters. he said he would be willing to intervene in that huawei case with the department of justice if it would help the trade negotiations with china. here's the quote from reuters yesterday. the president saying, if i think it's good for the country, if i think it's good for what will certainly be the largest trade deal ever made which a very important thing, what's good for national security, i would certainly intervene if i thought it was necessary now, that's notable because earlier in the week, robert lighthizer insisted that the huawei case had no bearing on the trade negotiations these were entirely separate one was a criminal justice party. one was a trade and international economics matter now the president conflating the two. that might send a signal to the chinese that he's willing to cut
8:05 am
a deal under article two of the constitution the president would presumably have the authority as the chief law enforcement officer of the country to intervene here in some way in the u.s. request to extradite the huawei cfo meng wanzhou. it's unclear whether it's going to happen or just contemplating. but making that comment, it puts the poker chip on the table in these negotiations >> earlier today we were speaking with one analyst or a trader actually that said the market has become more of a show me market. it used to be things are hopeful in these trade talks was said and the market would move. now the market is reluctant to move on a tweet, wants to see more do you think that is setting in, that reality in washington >> i think it is you saw the tweet from the president yesterday saying great things were afoot in the chinese negotiations watch for major announcements
8:06 am
soon but when you talk to officials at the white house as i did yesterday, there's just no evidence there are any major announcements coming in the china negotiations despite what the president tweets so, you know, you look for the substance under the sizzle there and you don't see much now, maybe there's something he's thinking about that's behind the scenes we don't know about yet. but it doesn't seem like there's anything there other than the president trying to set a tone and send a signal to the markets and the world. >> we got the auto news yesterday. they don't dispute it completely they're going to 15%, aren't they is that not happening? they went up to 40%. and now where are they is it likely they go down to 15% or not >> the u.s. side believes they're going to go down to 15%. >> so that's something >> they'll g back to where they were in may before all this started. >> i think the huawei cfo is a legitimate chip.
8:07 am
>> the question is was there underlying substance to that arrest and to the fact huawei was involved in getting around iranian sanctions. if there was substance to that, is the president willing to let is that go basically, allow that sanctions violation to happen in order to get this trade deal through. is that a political choice and a legal choice he's prepared to make >> the fallout from yesterday's fire works in the oval office, threats about shutting down the government of course nancy pelosi and senator schumer in the room. is there any news this morning in terms of what may or may not come next? >> we don't know it didn't look from the outside like there's any deal imminent there. i mean, both sides sort of talking past each other, disagreeing on the basic facts of the situation nancy pelosi did say late yesterday that the president called her and they had what she described
8:08 am
as a construct oive conversation clearly both sides, it's in their political interests to be seen as sort of kneecapping each other in these public settings because both of their bases want a fight politically. >> but the markets don't >> right but what are they concerned about here they're concerned about 2020 >> oh, god >> the markets clearly don't eamon, thank you for that. we're going to continue much of this conversation right now. joining us for the impact on the market is dan clifton. mike santoli is still here you're sitting next to me so i'm going to you first there's an overlay of a couple things in terms of the way the market is reacting we've got this brexit issue plus the theresa may vote of no confidence coming up
8:09 am
we have the fireworks that happened in the oval and now the president saying he may step in the huawei news. what do you think the market is looking at >> i don't think the market is moving in precise increments ticking to every one of these headlines. i think the market is reacting to the overall heightened noise level. the noise level is very high you know, the futures right now on the s&p are going to get you back to where we traded last friday >> by the way, we've had head fakes every morning. >> that's my point the market wants quiet the market wants to price in what the fed's going to do and all the rest of it i think we backed ourselves into a place of a lot of people thinking we need some kind of progress on trade to kind of liberate us from this period it's not clear to me that we're going to get that before the end of the year and the market might not wait for that to attempt to try to show this was a bottom. >> dan, what do you think? >> think about where we were eight days ago, andrew nobody believed there was a 90-day time limit. nobody believed there was ag
8:10 am
purchases. nobody believed there was going to be auto reductions. and if this is a show me market, over the last eight days we've learned that to be true. then we had the arrest of the chinese business executive we wondered if that could be separated from the trade talks it looks as if that is going to be separated from the trade talks. so there has been incremental progress on trade. >> although you think it's separated? i thought the president just hinted that he was actually now wrapping it into the trade talks. >> i want to be careful about that but before we had that development last night, it was clear the chinese are making moves to lower auto tariffs. what the president is saying is i want to do a deal with china the market has been dismissive of that. our sense is that arrests will then lead to company sanctions and it will still be a criminal justice offer, but the president
8:11 am
is sending a signal that by march 1st, he wants a deal and don't get me wrong there's going stobto be a lot of hiccups. i think on the china issue, we've moved in the right place. >> that's the question you see the tweets and the president tweeted out just yesterday morning, you know, positive news on the china talks. he had positive news on december 7th. similarly. and yet you're right this is a show me market when you see those tweets, what do you think the investor is actually supposed to do? >> yeah. so it's hard it's like tax reform you remember when gary cohn put out a tax reform page? that's what i think is going on with the markets as we get close to a deal the market wants to focus on that. you're going to get an earnings call where companies are worried about tariffs. but a month ago everybody was worried about tensions then you add the episode in the
8:12 am
white house yesterday which raises a new risk. i don't think people are worried about a government shutdown. in fact, we're talking about 3% to 5% of the government in total being shut down on december 22nd but they're looking ahead to the debt ceiling fight in mid-summer next year to sequestration and saying can divided government solve those problems that's going to be a larger issue and it's going to take time to get resolved it's a push/pull market. we're probably going back into trench warfare but the president is making progress on the china trade issue. i think in the past seven days things have gotten better, not worse. >> can you define what you think progress ultimately looks like one issue we've been wrestling with is actually what the goal line looks like. that may be a negotiating tactic it makes it very difficult to actually measure if you're an investor >> absolutely. i would put its into three buckets. number one, tariffs in china are
8:13 am
on average 10% in the u.s., it's 3.5% they want those tariff schedules getting lower. second, the joint venture requirements, the stealing of intellectual property. you're already seeing china loosen those restrictions particularly for non-u.s. companies. but eventually it's going to translate. but it is much more complicated and detailed than we know about. this is about cybersecurity. it's about artificial intelligence and those conversations are happening behind the scenes. they've been going on for he last six to eight months there's a lot going on we don't see. those are going to be the tougher issues to crack. whether or not we get a deal is going to be decided on those issues but visible on the surface, tariffs and some of the non-tariff barriers. they're making significant progress on that it looks like both sides want to do a deal. >> you can believe there's progress ahead
8:14 am
you can believe that the market doesn't think there's going to be a new layer of tariffs. you're still left with how much of what we're going through in the markets now is policy stress how much is really trade how much is just 10% on chinese imports? it's not clear because we're dealing with this huge subset of issues >> but you're looking at concerns about the end of cycle, late cycle for the economy and you wonder how much trade will then kind of pile on >> i agree with that. >> fed policy mistakes >> right >> dan clifton, thank you. when we come back, amazon chose new york city for half of its second headquarters. but does new york city want amazon when we come back, the fight against the retail giant from the grassroots in the borough of queens stay tuned you're watching "squawk box" on cnbc
8:15 am
when you retire will you or will you just be you, without the constraints of a full time job? you can grow your retirement savings with pacific life and create the future that's most meaningful to you. which means you can retire, without retiring from life. having the flexibility to retire on your terms. that's the power of pacific. ask your financial professional about pacific life today.
8:16 am
the new capital one savor card. earn 4% cash back on dining and 4% on entertainment. now when you go out, you cash in. what's in your wallet?
8:17 am
this is moving day with the best in-home wifi experience and millions of wifi hotspots to help you stay connected. and this is moving day with reliable service appointments in a two-hour window so you're up and running in no time. show me decorating shows. this is staying connected with xfinity to make moving... simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today. welcome back to "squawk box. new york city's council is
8:18 am
meeting today to discuss amazon's plans for hq2 in long island city, queens. protests are expected to take place ahead of the hearing kate rogers joins us now with a debate from both sides of the aisle- >> reporter: amazon of course is coming to town here in long island city. and local businesses have mixed feelings on the retailer's plans. we talked to local restaurateur who owns an indian restaurant. he says he's surrounded by empty store fronts and really excited about the potential to lure in 25,000 new customers in the next few years. >> i think running a small business here to a certain point, we find this intimidating that there's this big box kind of a retailer coming in. i think the way to look at these things is not through fear, through that lens. but a sense of building a more thriving community
8:19 am
>> reporter: he's locked in with a ten-year lease so rents aren't exactly top of mind for him but rent is on the mind of lexi beach. he owns a book shop two miles from the location. she says she's worried about what amazon means for local residents and businesses in the long-term. >> to have it be quite so close feels a little bit like a kick in the teeth from a state and a city that purports to support small business >> reporter: amazon says it's excited to work with the local community here in queens and that in addition to creating tens of thousands of jobs both directly and indirectly, they're planning a start -up hub and muh more >> some local legislators are still trying to fight the move to long island city. joining us now is who represents the district where the
8:20 am
headquarters will be located and senator, thank you for being with us today. what's your complaint about amazon coming to town? >> good morning. i have several, first and foremost we're talking about something that's going to cost taxpayers $3 billion and probably more than that. we haven't even gotten the full scope of the incentives going out. look, i'm for jobs but at what point is it worth it when you have google across the river bringing 20,000 jobs itself why is it the state and the city's responsibility to provide billions of dollars to amazon which is probably the one company in the country that needs it the least >> we asked alicia glen the new york city deputy mayor who was responsible for shepherding this deal the same question if you have somebody here like google doing this, she says the incentives are not there for any company. they're using existing incenttives to try and start
8:21 am
growth outside manhattan a lot of companies want to come to manhattan it is much tougher to entice companies to come to the outer boroughs the city portion of the incentives are as of right now $1.2 billion of the total. the state portion of the incentives which is another $1.7 billion are discretionary. those were given to amazon they didn't have to be to go there. >> she also said that revenue will be $12.5 billion that gets brought in by this what do you say to that? >> look, this has been one of the great pr scams this whole hq2 process. the cambridge dictionary defines headquarters as the hub of operations they run a great operation they set up this process to
8:22 am
squeeze as much money as they can out of these locales and new york fell for it new york city has been on pace to generate jobs every year. it's significant it's not as significant but it's relatively modest in the size and scope of new york city >> senator, here's the question. look, life is relative okay you can either have them or you can't have them. if you believe that amazon is going to help build an ecosystem around long island city which dare i say has been left for dead for a long time, if you want to attract a big technology company that others want to be around, you can offer an incentive. or perhaps they'll go somewhere else the question is which do you want >> you're right about one thing. it is relative
8:23 am
when is too much too much? >> that's not what's on offer. the issue is about what -- what's -- the issue is strictly about the amount of money that's been offered to them you can say i don't want to give them this money and they can say thank you for playing, we're going to another state. >> and it's not being paid by the state. it's opportunity loss from taxes you maybe would have had the progressive mentality, it never seems to be about progress i don't see how you can look this gift horse in the mouth -- you've been talking the whole time this is the first thing i've said >> well, if i could just answer your question. i believe $3 billion to amazon is too much. there are other big companies that have come here without that incentive. >> so you'd rather forego the amazon headquarters. >> you're accepting that as a binary decision. amazon itself said they did not come here for the incentives they came for the talent pool. i believe we made a bad deal we underestimated the value
8:24 am
of -- >> just to clarify what you would like to do and i'm not sure this is even available to you but if it was, you would just like to regoerkt the transaction. >> as you pointed out, i have a deal before me that i think is a bad deal it's bad for long island city, new york city, new york state. i am against that deal if they want to talk again about coming to new york city which has value for them >> and if they were to say, look, senator. we have this other great opportunity in virginia. we're just going to double down there. you would say what >> that's their choice at that point. but i don't think it's worth providing $3 billion and setting a precedent that every other company around the country says new york has its pocket open to be picked. we're next in line that could help a lot of needs like our subways, building schools. yet we're choosing to give it to a company that doesn't need it >> senator, want to thank you for your time today.
8:25 am
>> thank you, becky. when we return, shares of general electric trading at low levels not seen now in a decade. but could the worst be over for ge we'll tell you after the break once i started looking for it was a no-brainer. i switched to geico and saved hundreds. that's a win. but it's not the only reason i switched. the geico app makes it easy to manage my policy. i can pay my bill, add a new driver, or even file a claim. woo, hey now! that's a win-win. thank you! switch to geico®. it's a win-win.
8:26 am
8:27 am
still to come this morning, november cpi data minutes away we've got the latest inflation read when we come back stay tuned "squawk box" back after a quick break.
8:28 am
your brain changes as you get older. but prevagen helps your brain with an ingredient originally discovered... in jellyfish. in clinical trials, prevagen has been shown to improve short-term memory. prevagen. healthier brain. better life.
8:29 am
8:30 am
just seconds away, literally, from november cpi data the futures now are up 264 points >> nine seconds. >> it's the way that keeps happening. now less >> fewer >> rick santelli standing by at the cme in chicago what do we got >> all right here we go our read is unchanged. exactly as expected on headline. flip it down to core, ex-food and energy, also spot on with expectations up 0.2%. up 2 p.2% on year over year. and ex-food and energy year over year, 2.2% these numbers are exactly as the analysts and market predicted. there's a couple of interesting things, of course. like yesterday's ppi this month is much tamer than last month which is up up 0.3% and 0.2% respectively.
8:31 am
but most important was that year over year number last look it was 2.5%. now it's 2.2%. keep in mind that four months ago was 2.9% back-to-back. that was the highest read going back to december of 2011 last time we saw 3% so inflation certainly seems to have peaked for this cycle and several months ago actually now if we put all the pieces together so it's going to just make more interesting fodder for the fomc next week. especially when you consider all the global issues that are at stake at this point in time. becky, back to you >> stick around, rick. >> thank you we're going to continue this conversation steve liesman is here too. what do you think? >> couple quick things gasoline down by 4.2%. that's not part of the core calculation. i think that comes off at some point. so i feel like the fed is going to look through that downdraft there. other stuff is kind of all over the place. you have this rebound effect to
8:32 am
the down -- still existing in used car prices after the storms you got this -- you know what i'm talking about, right >> people buying cars cheaper because they were flooded out. >> used car prices surge and they're still up a bit new car prices are up zero and the new and used are up 0.8%. medical care has been an interesting number the year over year has been quite muted. i'm not quite sure why 2% year over year, that's a number that usually running 3% or 4%. i think the fed is going to see this as sort of inline not trying to micromanage. rick, i have a chart here. i don't know if you have a monitor there. it asks the question what's normal and what you'll see is the cpi core year over year percent change and the fed funds rate. i'm describing this chart because i have great hopes it will come up one of these moments. maybe not. that the cpi runs above the --
8:33 am
sorry, the fed fund runs above the cpi until the great recession. and then it was below it we don't have the chart. sorry about that right now the fed is trying to reach up to this point where it's at least equal to trying to get a positive of the neutral fed funds rate rick, is that a worthy goal? unworthy goal? which is the normal for the fed funds relative to inflation, my friend >> i don't think there's any good litmus test i could describe in a short period of time as to what would be a good definition of neutral. but i would say this that the best way a market participant over the decades has looked at a neutral rate and maybe not described it in that vernacular is at the point where policy becomes an issue, a fundamental for the markets that seems to affect either the complexion of the yield curve or the investment tone towards the
8:34 am
interest rate and fixed income sector and i think that's as good a way as i can put it. it's a monument tally difficult task but i think this particular episode is most difficult because of the artificial areas from which the fed has to rescue rates and compound that with the notion that they most likely history will prove waited much too long after the crisis to try to go down the road of nar mallization. >> rick, if you give me money today and i promise to give it back to you tomorrow, should that be a free transaction for you? >> well, nothing is free, no it would have to be -- >> it is now though. there's no compensation -- >> it should be free for him always you talk about him giving you money. should it be free for you? >> right there's no compensation on inflation for that transaction >> you used to pay someone just to keep their money for a -- remember there was a time you got back less than what i gave you and i
8:35 am
was happy to get it just because you held it for me at least we're beyond that >> i guess at the bottom of this, i'll ask the most fundamental question of all. >> as you often do >> why is it that the fed believes reducing the purchasing power of every american a little bit a year is the right thing and how in god's earth could they calibrate it at the same level, for example, of europe at 2% none of that makes sense to me >> so you want to go to a zero inflation goal >> no. i want to do exactly what the pillar says. stable prices. and trust me, we've had stable prices for a long time. >> what are stable prices on an inflation basis? what number would you put that at >> anything less than it was up until about 1988 how's that >> so now it's two do you call it stable now? >> i would say that stable has to be a function of an equation
8:36 am
that includes productivity and growth if you have a 3% economy or 4% economy, your inflation rate should be less than that but when you have a 2% economy as we did for six years, thinking you're going to have a 2% inflation rate as your target and you're going to use that hammer trying to get that outcome to me is insane. >> rick, let me ask you one other question i was thinking earlier when steve pointed out what we've seen in gasoline and how that doesn't apply into the core. do you remember probably 11, 12 years ago we used to get into long discussions about whether or not they should be paying attention to core. because of course you have to eat and fueling up your cars along the way. i mean, it's such a weird factor right now because oil prices have dropped so dramatically how do you put any of that into the equation especially if you're trying to determine what the economy's doing right now? >> well ab lot of what goes on in commodities have volatility especially in energy is really difficult with respect to the lasting effect
8:37 am
so i can't give you an easy answer there either. but i do think that i would like to look at everything together in a more important aspect volatility aside with rpd to energy i don't understand the notion we try to make everything so static if energy's moving up and down a bit, i don't think it's outside the relment of expectations for the opinion of the fed not to be crazy volatile, but to think they could have some symmetry and shadow that should they believe that type of movement warrants some type of backstop with respect to the overnight rate i think this notion they have to advertise what they're going to do and hardly change it at all is not good for policy and i also think what little they do on interest rates could have outlasting damage >> so you want them to hold here >> it's like watering a geranium from three miles away with a fire hose. what they aim at, they so little
8:38 am
effect in the outside effects of their policy are much larger than what they're concentrating it on. and that is a problem. >> all right, rick, thank you. steve, thank you >> he agrees with me the fed does have a lot of tools in the mix >> i just like to think if you're the policy maker, what do you do >> you're going to get the last word now that we say good-bye to him? you really want to do that >> i'm ending only on a question >> okay. well, keep it with a question mark there >> meantime, another stock with a big question mark on it is general electric trading at numbers not seen since the financial crisis 6.66 in trading. want to talk to larry macdonald this morning author of the bear traps report. he's always going around finding what to trap >> also a cnbc contributor >> and also a cnbc contributor
8:39 am
you think this is the bottom >> well, the capitulation of the equity here. mike and i have been talking about this for several months we've had these tradeable countertrend rallies clearly we're going to have one of those the next 60 to 90 somedays whether or not we can hold those lows is coming down to the credit markets >> what are the technical issues then i want to talk about the fundamentals which i do not think i actually am anxious about the headline risk even at this point >> you know, i ran one of our distress businesses at lehman. the one thing that related to what steve is just talking about is when you keep rates so low for so long you have this group of companies that were hiding out and really profiting for shareholders on the front ends of the yield curve for years. now when the fed makes that drastic move higher, that whole
8:40 am
thing gets unwound in a short period of time bottom line, if you get a softer fed policy path here, plus tax laws selling -- something like that with the tax law selling that's going to end at the end of the year you're talking about a potential 10%, 15%, 30% bounce by march. >> what is the credit market saying now about the solvency of the business obviously the risk has been there not just about the structure of the yield curve >> every person i talked to thinks the finance business has a $10 billion to $15 billion write down in other words everybody is talking about -- >> it's baked in >> has to be baked in on the credit side. then the dividend cuts 60% of the people we spoke to calling for a dividend cut the credit default swaps and the bonds just to keep it simple, the bonds are up since november 15th three to four points and the equity is down 15.
quote
8:41 am
we saw this with tesla mysteriously the bonds were three, four points and a month later -- >> this is the moment? >> i think so. i think credit markets are telling us something positive. you're really going to need a trade deal out of china. think of china and all these -- europe you need an energy business out of ge, some sustainability >> is there any headline on the upside it's not geopolitical or macro but out of ge you're looking for. like ge operations like the actual company itself >> like i said before, we're looking for a $10 billion to $15 billion writedown. on the aviation side, you're starting to see a business where -- think about tail risks exposed to other companies when you have this credit
8:42 am
contraction triggered by the fed, the impact on companies like boeing. you're talking about the largest in ge. that's affecting boeing sales. >> if they put out an announcement saying we're having an auction the model that was ge no longer exists what would the stock be worth? >> well, nelson peltz and the most brilliant financeers in the world have that. >> rich just asked why the fed tells people what they're going to do. it forecast and told the public it was going to raise rates. now you're telling me that the increase in rates was a problem for ge did they not prepare for a higher overnight funds rate? did they ignore that >> there was nothing they could do about it. >> the whole business model is set up that way. >> i think what rick is saying, when you keep rates so lo for so long, there's an apathy.
8:43 am
you're talking about hundreds of companies that have been hanging out of that front end of the yield curve. this company has paid $12 billion in dividends >> there was like a two-year lead i'm thinking of raising rates, really thinking of raising rates. i think i'm going to raise soon. you know what? i'm going to raise rates and they just ignored that >> in 2015 in january, they promised us eight rate cuts in 2015 and '16 >> rate hikes. >> excuse me rate hikes >> quick question before we go, do you see any connection between the falloff in terms of the woes we've seen among the banks and ge in terms of bank loans, versus them being in the commercial market? >> i've had a hard time drawing the direct connection. >> you think that's a red herring? >> once again asking buy side and sell side clients on that, they claim it's been financially syndicated you had a lot of leeway here
8:44 am
>> i just wonder what it was >> if it's a short train wreck, it would be one. now it's a long-term train wreck. >> larry macdonald here on the set, thank you >> thank you comening up when we return, faang stocks have been hit hard since the middle of the year the case for two of them, you're going to have to hear this when "squawk" returns in a moment see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st.
8:45 am
hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade is it because so many go after it the same way, chasing after short-term returns? instead if getting caught up with the crowd, the investment managers at pgim take a long term view. uncovering opportunities for alpha across public and private markets, while anticipating unforeseen risk, has powered our rise to a top ten global asset manager. partner with pgim. the global investment management businesses of prudential financial, inc.
8:46 am
apple stock down more than 20% over the past three months now it's looking pretty cheap. but is that enough to support the stock and fuel a rebound he's here. he's ready cnbc's senior markets
8:47 am
commentator, we're not bringing on any juniors, freshmen, sophomores we've got the senior market commentator. >> i'm asking the question the stock is back to -- how far back do you think you have to go to get where the stock shot up april. so it's down a lot it's down something like 30% the valuation is down a lot because earnings estimates have not come down that much. we have a chart of the forward pe multiple of apple which by the way reached a multi-year peak a few months ago. there you see how it has basically collapsed. it's down about 13 based on the coming 12 months earnings. it's an -- not growing net income that much it's doing a lot of buybacks and financial engineering in getting some pricing that is help iing.
8:48 am
of course it's a china risk and buybacks have been oversold to investors because they're buying back a ton and has not really supported the stock yet. so all those things i think people are worried about the market and apple represents a lot of that. of course you also have the kind of premium that got built in as well where we are now, i think the service business is a rorschach test about how you think about this stock either it's a savior for the -- first of all, at the high valuation, it was your excuse for paying up more for apple >> because it's a higher margin business >> yes now it's can it support on the downside because iphone is considered to be falling off cheap but cheap enough >> they could always come out with something and we have to have it. we don't know what it is that's what we used to talk about two or three years ago then we got comfortable. >> they've done a good job of kind of elongating the cycle >> we got comfortable with not having an apple car. we got comfortable with not having an apple tv
8:49 am
we got comfortable thinking incremental gains were enough. >> would they do that with the watch? >> he's got a watch. you got a rolly you put away >> i did because the utilities of this -- >> you always wanted that rolly. >> well, one of them >> you got more than -- you are unbelievable all five of the faang stocks have taken a pounding in the past six months. here to talk about two of the companies in the group, apple and net flex -- >> so hard to get rid of the ek coin t -- echo in the hall >> they're totally different yet i just think of them almost the same way sometimes, apple and -- and they do move somewhat correlated, do they not? >> they do move at times together, joe. but i think first if we look at apple, this is really a company that is developing and has developed innovative products and even though there are
8:50 am
concerns around iphone units, the install base is continuing to grow. the customers are really satisfied with the device. services as the team here as been discussing with continuing to grow. you look at wearables, look at they are extending into new areas. when we think of where this company is going, if the ecosystem remains healthy and risks around china, there is additional value that could be created in our view of the next one or two years >> you are watching futures moving wall street journal is saying china is preparing to increase access to foreign company. a new program promising greater access for foreign company and people brief on the matter if in fact this is true.
8:51 am
>> it may be one of the elements >> i think the tariffs may have been one thing on cars >> this could be dangled in front of us. when china says it is going to be different in the old way. >> what they did was putting out 2025 was to put the world on notice that they were coming for a lot of these things. according to this journal article preparing a draft of policy that would rewrite made in china of 2025 the question is, do we believe it or not? >> the revision is likely to be treated with skepticism in the u.s. >> there has been a lot of people who have said they made a mistake by putting it out here now they're trying to take it back sorry, we didn't mean that never mind >> let's get back to netflix and chilling >> which i thought they were just hanging out
8:52 am
>> we are just watching netflix. >> oh, i had no idea how am i supposed to know what millennial is thinking >> netflix is building a direct relationship to consumers. we think ultimately because the paradigm around tv and content consumption is changing, netflix is at the forum there. if they continue to in ne vaccinate and execute, we think there is a lot of values to be created. >> i mean the market kept on this >> i watched that. it blows me away >> he's always too expensive now it is impossible >> you know comcast when you look at some of the service providers or wireless companies, earli early on in their history, it is all about subscriber growth and not generating free cash flow.
8:53 am
we are seeing something similar with netflix ultimately, over the medium to longer term, we'll see the free cash flow being generated. if you look at another company, t-mobile went free cash flow positive a few years ago they are adding subs, you need to look at these with different metrics and of course to maintain a longer term time horizon. >> very good we appreciate it thanks for coming in try to focus a little bit more and grilling down on this china story. let's get down to the new york stock exchange jim cramer is joining us now >> we are talking about nuance, jim, i am trying to figure out how you are viewing this whether it is a wink or a nod from china or real progress being made or whether they know they actually do need to atone for some of
8:54 am
their previous business practices, do we believe this? >> peter navarro, my think is very much in control not mnuchin. called over and over again to repeal the 2025 world domination plan i am not kidding that's what it is. this would be a sign that basically this is about worldwide by the chinese and if they can back down, i find it hard to believe that xi can back down of his policy it is a sign that trump is winning and trump should press his bed. it is remarkable if they agree to get rid of 2025 >> do you believe they're getting rid of it or trying quietly? >> so far they have not told the truth for what i can see they continue to press the bet against our country.
8:55 am
i would love them to see modify 2025 it has to be like larry kudlow says, it has to be trusted this is no difference than the soviet union this is a cold war 2025 is an insult to our country. i am very, very blad that at least they recognize it is an insult >> they say back down, i am trying to think this through quickly, if they back down they are admitting they are wrong to tell everybody what their plan was. >> they have not done that >> if you are talking about goals for 2025, that's the thing they want most is time >> i trust themless than any country other than venezuela >> they lie to us constantly think about today, we wake up and they hacked marriott >> they hacked marriott. they're going to be indicted by the justice department their own people and ages is
8:56 am
about to be indicted you bet they're worried. >> by the way, it is canada. people keep saying well, united states did this. the canadians did not have to do it, they didn't have to ex coots or warrant that's crazy canadians have had it and europeans have had it. it is about time that bolton comes up and lighthizer saying it is not the u.s., it is the world. how many countries do they want to own of this belt and road initiative you got to wake up at least they finally admitted to peter navarro is right. >> so north korea, we find out they built a bunch of facility there is no missiles headed to japan anymore. i mean maybe the three steps forward and two steps back, i feel like we don't want to get played are we going to get played >> there is a note today of
8:57 am
mosiac, a phosphate company. they are made up of seven months of holding back phosphate. how do you trust these guys? when my father was selling american gift wrap, why do we care they wrap the american gifts. >> come back >> trust and verify. >> thanks jim. we'll see you ain couple of minutes. stay tuned "squawk box" will be right back [leaf blower]
8:58 am
you should be mad at leaf blowers. [beep] you should be mad your neighbor always wants to hang out. and you should be mad your smart fridge is unnecessarily complicated. but you're not mad, because you have e*trade which isn't complicated. their tools make trading quicker and simpler. so you can take on the markets with confidence. don't get mad. get e*trade and start trading today.
8:59 am
9:00 am
all right, check out the futures, a big pop in the last 10 or 15 minutes or so as news came out in wall street journal that china is in the process rewriting its made in china 2025 plan maybe does not have much world domination we'll continue coverage with this starting with "squawk on the street." mike, thank you so much for being here mike sonja ganantoli, we'll seek here tomorrow. ♪ good wednesday morning, welcome to "squawk on the street," i am carl quintanilla with jim cramer and david cross-clafaber. the chinese is preparing changes to the made in china 2025 initiative may faces the confident vote tonight london time. our ap

95 Views

info Stream Only

Uploaded by TV Archive on